Downward Spiral

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

Every once in a great while, you run into a mainstream article or news story that actually breaks through the thick cloud of conventional nonsense that passes for expert commentary. Despite clear signs about why people the world over should be worried about China, day after day we are told there is nothing to worry about. Their currency is in no trouble because, supposedly, they learned from the Asian flu of 1997 and 1998 and hoarded the largest mass of forex “reserves” ever conceived.

China’s $3 trillion-plus in foreign currency reserves, the biggest such stockpile in the world, would seem to be a gold-plate insurance policy against the country’s current market chaos, a depreciating currency and torrent of capital leaving the country.

And then the truth of it, which is much, much different:

Then there are other liabilities that China needs to cover, such as the nation’s foreign currency debt to finance and manage imports denominated in overseas currencies. When those factors are taken into account, some $2.8 trillion in reserves may already be spoken for just to cover its liabilities, according to Hao Hong, chief China strategist at Bocom International Holdings Co.

I think that estimate far too light, but that it is being suggested at all in this context is noteworthy. Forex “reserves” are not what they have been proclaimed to be; nor is the “dollar” system that leads to this mismatch between function and interpretation. China has $3.3 trillion in foreign “reserves” but they are not that. They are instead only one half of the picture, one side of a double-counted ledger. What is on the other side is much more of a mystery and it is that side that holds both all the answers and all the monsters.

Given all that has taken place this week, it is unsurprising to find the PBOC by Friday speaking about more soft measures that might be taken to curb the turmoil. But when you appreciate their suggestive stance for what might be between the lines of guarded wording, it only raises more substantive questions. First, in a statement issued today, the PBOC once more proclaimed its commitment to a stable currency which again more than suggests “devaluation” is devastating financial withdrawal. They claim that they will allow more interest rate liberalization to account for it, but that, too, speaks more about the desperate situation that they would at this late stage essentially appeal to outsideforces. This cannot be overstated (as I noted here; subscription required).

Even more revealing, however, was that the PBOC promised, cryptically, to revisit some of the “stimulus” that was used in 2014:

The central bank will use medium-term loans, and pledged supplementary loans and credit policies to support key areas of the economy.

Continue reading

My Financial Road Map For 2016

Submitted by Nomi Prins  –

Happy New Year to All! May 2016 bring peace to you and your loved ones.

Over the holidays, I had the opportunity to stay away from airports and hike Runyon Canyon with my dogs. For those of you that have never traversed Runyon’s peaks and dips, they are nature’s respite from the urban streets of Los Angeles, yet located in the heart of the City of Angels. It’s a place in which to observe, reflect, and think about what’s coming ahead.

As a writer and journalist covering the ebbs and flows of government, elite individual, central bank and private industry power, actions, co-dependencies, and impacts on populations and markets worldwide, I often find myself reacting too quickly to information. As I embark upon extensive research for my new book, Artisans of Money, my resolution for the book – and the year – is to more carefully consider small details in the context of the broader perspective. My travels will take me to Brazil, Mexico, China, Japan, Germany, Spain, Greece and more. My intent is to converse with people in their respective locales; those formulating (or trying to formulate) monetary, economic and financial policy, and those affected by it.

We are currently in a transitional phase of geo-political-monetary power struggles, capital flow decisions, and fundamental economic choices. This remains a period of artisanal (central bank fabricated) money, high volatility, low growth, excessive wealth inequality, extreme speculation, and policies that preserve the appearance of big bank liquidity and concentration at the expense of long-term stability. The potential for chaotic fluctuations in any element of the capital markets is greater than ever.

The butterfly effect – the flutter of a wing in one part of the planet altering the course of seemingly unrelated events in another part – is on center stage. There is much information to process. So, I’d like to share with you – not my financial predictions for 2016 exactly – – but some of the items that I will be examining from a geographical, political and financial perspective as the year unfolds.

1) Central Banks: Artisans of Money

Since the Fed raised (hiked is too strong a word) rates by 25 basis points on December 16th, the Dow has dropped by about 3.5%. Indicating a mix of fear of decisive movements and a market awareness deficit regarding the impact of its actions, the Federal Reserve hedged its own rate rise announcement, noting that its “stance of monetary policy remains accommodative after this increase.”

These words seem fairly clear: there won’t be many, if any, hikes to come in 2016 unless economies markedly improve (which they won’t, or the words would be much more definitive.) Still, Janet Yellen did manage to alleviate some stress over the Fed’s inaction on rate rises during the past 7 years, by invoking the slighted action possible with respect to rates.

Projections are past reactions here. The Fed, to save face more than anything or to “appear” conclusive, raised the Fed Funds rate (the rate US banks charge each other to borrow excess reserves, of which about $2.5 billion are with the Fed anyway), to .25-.50% from 0-.25%. And yet, the effective rate stood within the old Fed target range, or at an average of .20% on December 31 for various reasons, the timing of which was not lost on the Fed. It was at .35% or so on the first day of 2016. The Fed’s rate move was tepid, and it’s possible the Fed moves rates up another 25 or 50 basis points over 2016, but less likely more than that and more likely it engages in heightened currency swap activities with other central banks as a way to “manage” rates and exchange rates regardless.

Meanwhile, most other central banks (Brazil being an extreme counter example) remain in easing mode or mirror mode to the Fed. It’s likely that more creative QE measures amongst the elite central banks will pop up if liquidity, markets or commodities head southward. Less powerful central banks will attempt to respond to the needs of their local economies while balancing the strains imposed upon them by the elite central banks. Continue reading

Newsflash From The December ‘Jobs’ Report – The US Economy Is Dead In The Water

Here’s a newsflash that CNBC didn’t mention. According to the BLS, the US economy generated a miniscule 11,000 jobs in the month of December.

Yet notwithstanding the fact that almost nobody works outdoors any more, the BLS fiction writers added 281,000 to their headline number to cover the “seasonal adjustment.” This is done on the apparent truism that December is generally colder than November and that workers get holiday vacations.

Of course, this December was much warmer, not colder, than average.  And that’s not the only deviation from normal seasonal trends.

The Christmas selling season this year, for example, was absolutely not comparable to the ghosts of Christmas past. Bricks and mortar retail is in turmoil and in secular decline due to Amazon and its e-commerce ilk, and this trend is accelerating by the year.

So too, energy and export based sectors have been thrown for a loop in the last few months by a surging dollar and collapsing commodity prices. Likewise, construction activity has been so weak in this cycle—-and for the good reason that both commercial and residential stock is vastly overbuilt owing to two decades of cheap credit—–that its not remotely comparable to historic patterns.

Never mind. The BLS always adds the same big dollop of jobs to the December establishment survey come hell or high water. In fact, the seasonal adjustment has averaged 320,000 for the last 12 years!

For crying out loud, folks, every December is different—–and not just because of the vagaries of the weather. Capitalism is about incessant change and reallocation of economic activity and resources. And now the globalized ebbs and flows of economic activity have only accentuated the rate and intensity of these adjustments.

Yet the statistical wizards at the BLS think they can approximate a seasonal adjustment factor for December that at +/- 300k amounts to just 0.2% of the currently reported 144.2 million establishment survey jobs, and an even smaller fraction of the potential adult work force which is at least 165 million.

But that’s a pretentious stab in the dark. The December seasonal adjustment (SA) could just as easily be 0.3% of the job base or 0.1%, depending upon the specific point in the business cycle and structural trends roiling the economy.

Indeed, these brackets alone would vary the headline SA number by 150k to 450k. The fact that the seasonal adjustment factor for December has oscillated tightly around 300,000 for the last 12 years proves only one thing—–namely, that the bureaucrats at the BLS have chosen to invent the same guesstimate year after year; its not science, its political fiction. Continue reading


Submitted by J.C. Collins  –  philosophyofmetrics

Don't PanicWith the New Year well underway we are beginning to witness the next phase of volatility which will accompany the rebalancing of the international monetary system.  This recent batch of volatility can be associated with the normalization of monetary policy by the Federal Reserve.  Though most have come to the conclusion that there will in fact be this volatility, many do not consider that it has been accounted for, and a focused strategy has been developed to allow for its occurrence.

The international monetary and financial systems will wax and wane through the year as the Fed incrementally increases interest rates and China continues its transition to a consumer based economy.  Each episode of decreases and increases will be met with equal portions of despair and euphoria.  Commentaries and conclusions will be quickly drawn that the collapse is near, or that we are on the verge of a new bull market.

The next few years will not be for the faint of heart, but it is important to keep our wits about ourselves and be patient and knowledgeable about the transition.  The world monetary framework cannot change direction by ninety degrees.  The arc of transformation will take many more years and a final point of arrival is unlikely to ever be realized, as the evolution of all things, whether natural or manmade, knows no beginning or end.

The imbalances in the monetary and financial frameworks are the number one challenge for all countries and economies.  This imbalance is personified on one extreme by America’s extraordinary trade deficit, and on the other by China’s ridiculous trade surplus.  Both are equally as damaging. The shifting of wealth and resources to balance these deficiencies will cause vast and varying degrees of financial and monetary instability.

But like China expanding the trading band of its currency against the USD to account for these temporary and transitory inflection points (of which the lowering of the daily reference rate is but the beginning), the international framework has been re-engineered to absorb this erratic motion.  Occasional tweaks will have to be made at opportune times, but the trend is clear. Continue reading

What Is Really Bugging the Market

My good friend David Rosenberg, Chief Economist at Gluskin Sheff, has long been one of the biggest draws at my annual Strategic Investment Conference. I had always taken him for a “permabear.” Then three years ago, Dave shocked us by announcing in no uncertain terms – in his usual fire-hose delivery of hard data and brilliant analysis – that he had turned decidedly bullish. His call was of course spot on.

Dave will once again kick things off at this year’s SIC, and you’ll want to be there to catch his every valuable, investable word. David is only one of our all-superstar cast. At SIC we have only headliners, people who would keynote any other investment conference. You get to see them all in one place.

I can say with some justification (and a measure of pride) that SIC is the best economic gathering on the planet, and SIC 2016 is going to be our best yet. The dates are May 24-27, 2016, and this year we’ve moved the conference to Dallas, my home turf, with easy access from anywhere in the world. Just as you’ve come to expect, we’re tackling a big theme: “Decade of Disruption: Investing in a Transformed World.”

In the decade ahead, you and I will not be able to successfully invest in the same way we did in past decades. Our world is transforming at an ever-accelerating rate, and we’re going to need a more comprehensive understanding and better tools if we’re going to invest in that world profitably.

To see how SIC16 will help you with those aims and to get all the particulars on registration, click here. And don’t tarry: if you register by January 31 you’ll save $500 off the walkup rate. Continue reading

Why We’d Welcome a Depression

Submitted by William Bonner, Chairman – Bonner & Partners

Connecting the Dots

DUBLIN – Dow down 252 on Wednesday – or 1.5%. Chevron, Apple, and Goldman Sachs leading the retreat. The press blamed China, North Korea, oil, and “geopolitical concerns.”

So far this year, the Dow has lost 3% of its value [ed. note: as of Thursday’s close it has lost a little over 5%]. Let’s see… We believe it is headed for a 50% loss. So, at this rate… we’ll be there by June!


1-Less-than-Confi-DowA less than joyous start to the new year: the DJIA has so far delivered its worst first trading week since at least 1900. That’s the year 1900 in case you were wondering – click to enlarge.


Readers frequently accuse us of being “negative” or “depressing.” Yesterday, one even charged us with fanning the fires of fear and fright to sell newsletter services. We deny it. Fear doesn’t sell financial services.

Ask Goldman. Wall Street sells greed, not fear. It promises profits, not losses. It offers dreams of wealth, not nightmares of poverty. Besides, when you see prices falling, you just go to cash. You don’t need expensive trading advice.

At the Diary, we monger neither fear nor greed. Our only mission is to try – feebly… humbly… uncertainly – to connect the dots. Of course, the dots are many… and they are everywhere. Like a Rorschach test, we risk seeing only what we want to see. But you can’t see anything if you don’t look. So, we squint… we strain our eyes. And what do we see? A top! And then what?

A secular downturn, when stocks will go down – or nowhere – for the next 10 years. If we’re right, a lot of fortunes, jobs, reputations, and mojos will be lost. Defaults, depressions, disruptions, deflation – we’ll probably see a little of them (or a lot!).

Many dear readers find this unappealing; and they mistrust our motives. They seem to think that because we see clouds on the horizon, we must want it to rain!

But wait… They are right. That is the pattern we’ve been looking for!

This parched earth needs a good soaking… and a healthy wash. But if readers think this is “negative,” they should blame themselves, not us. They are looking at the glass as half empty; we only see the part that is full of St. Emilion Grand Cru 2006. Continue reading

Update to BLS December Payroll Jobs Report: It is even worse than I reported

Submitted by Dr. Paul Craig Roberts – Institute for Public Economy

In my column on Friday I reported the unreported facts in the payroll jobs report. If we choose to believe the report, it is really very bad news. Good middle class jobs are continuing to decline. The new jobs are jobs that pay considerably less and often are part-time jobs devoid of benefits. Moreover, the new jobs are going to people outside the prime working age. The unavoidable conclusion is that for the majority of Americans, economic prospects are declining.

There is more bad news to be added to this dismal picture. The payroll jobs report provides both the actual numbers of jobs from the survey and the seasonally adjusted number. The news release is always the seasonally adjusted number, which is the number that my column examines. However, the seasonally adjusted number is concocted.

In past reports I have explained that the BLS has a birth-death model that assumes new unreported jobs from new business startups exceed unreported jobs losses from business failures. John Williams ( has shown that over-estimates from this model can add 750,000 non-existant jobs to the reported annual payroll jobs increase.

Seasonal adjustments can have the same effect. For example, the actual reported gain in new payroll jobs prior to seasonal adjustments was only 11,000. The seasonally adjusted gain was 292,000. In other words, seasonal adjustments accounted for 281,000 of the 292,000 reported jobs. There is a case for making seasonal adjustments, but not when seasonal adjustments account for 96% of the jobs gain.

Probably what we are observing is that the economic house of cards that the Federal Reserve has constructed together with financial deregulation depends heavily on reported jobs gains for its stability, and this stability is provided by the use of the birth-death model and seasonal adjustments to produce reassuring payroll jobs numbers. Continue reading

The US Economy Restrains Itself; No Need For Monetary Policy Influence

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

The Census Bureau released its estimates for November US trade. It was yet another debacle for the FOMC narrative about an economy poised to overheat. November was the month in between the two FOMC meetings where they first declared (October) risks diminished and then (December) recovery conditions fully met. Instead, both exports and imports in that interim shrunk considerably, casting very real doubt as to what the FOMC is actually using as a basis for economic assumptions. We know already, as the Committee has rather plainly implied, that they cast aside actual market data but increasingly it looks to be their full approach with estimates of all types.

US exports fell by more than 10% for the second straight month, and for the third time in the past four. That much was expected, at least in the direction if not the intensity, by orthodox economists who consider overseas turmoil the primary economic thorn. However, imports likewise declined for the eighth straight month, leaving only one positive number for all of 2015 with which to suggest robust US demand.

ABOOK Jan 2016 ExIm Exports LongerABOOK Jan 2016 ExIm Exports CycleABOOK Jan 2016 ExIm Imports LongerABOOK Jan 2016 ExIm Imports Cycle

Continue reading

The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth


• The US Economy Is Dead In The Water (Stockman)
• America, Your Credit Rating Stinks (BBG)
• Up To A Million Americans Will Be Kicked Off Food Stamps This Year (HuffPo)
• How Debt Conquered America (Thacker)
• Saudis Told To Prop Up Currency Amid Global Devaluation War Fears (Tel.)
• Could Saudi Aramco Be Worth 20 Times Exxon? (WSJ)
• Saudi Arms Sales Are In Breach Of International Law, Britain Is Told (Observer)
• China Heightens the Contradictions (BBG)
• Germany’s Sparkassen: Banking On Capital Exports (Coppola)
• VW Proposes Catalytic Converter To Fix US Test Cheating Cars (Reuters)
• ‘Tax Wall Street,’ Trump Pledges After Worst Market Week Since 2011 (BBG)
• Heavily Armed Men Offer ‘Security’ For Oregon Militia At Refuge (Guardian)
• Two-Thirds Of Tory MPs Want Britain To Quit European Union (Observer)
• EU Eyes Start Of Greek Reforms Review January 18 (Reuters)
• ‘Greek Government Has Solid Majority To Pass Pension Reform’ (Reuters)
• Anger Over Fate Of Child Refugees Denied UK Asylum Hearing (Observer)